If you'd ask me to define the 'housing crisis' three years ago, I'd have said it was epitomised by escalating house prices keeping some buyers out of the market and a severe shortage of housing, particularly in Auckland.
Today, I'd define the housing crisis as the risk of declining capital values; the knock-on effect of that into the broader economy — and (still) a severe shortage of housing in Auckland for buyers and renters.
The change in my definition is simply a reflection of where we're at in the cycle — and a reminder that there's no "silver bullet" solution to these issues because the market is constantly changing.
As circumstances change, policy needs to adapt. Sadly, that's easier said than done. In New Zealand, the Governments think in terms of electoral cycles, the Reserve Bank is fixated on containing inflation, and the trading banks act primarily in the interests of their profitability rather than the wider interests of the housing market.
But the reality remains; the objectives which should underpin housing policy in April 2019 are different to those which confronted us in April 2016. Today, we need policies that:
• Start with the premise that capital values should be protected. No one, other than a few canny property investors, is going to invest in a market where values are falling — not to mention the disastrous knock-on effect of a drop on the wider economy. So solutions that welcome big drops in property values, or even promote ideas to "crash" those values, need to be dismissed out of hand. This must be the primary criteria by which all other policy is measured.
• Dramatically increase housing supply to start making a dent in the 100,000 homes we need right now (particularly given the failure of KiwiBuild to deliver).
• For every 10 people who need housing, four will live in a rental, so we also need to increase the stock of rental housing.
• And we need to increase our levels of home ownership and reverse the decline of the past 25 years back to the record levels we achieved in the mid-1990s.
If we can look past ideology the prescription to achieve these things is actually remarkably simple. It consists of three 'time limited' policies which would go a long way toward kick starting construction, assisting first home buyers, and protecting capital values.
1) Abandon plans to punish investors. The Coalition Government's plans to hit investors in the pocket and scare them out of the market may play well to a section of their support base — but they fly in the face of the things that we need to be doing to solve the housing and rental crisis.
This means shelving plans to introduce a capital gains tax on investment property and retaining transferable tax losses, either in their entirety, or at least for those who invest in new dwellings.
2) Remove LVR restrictions on new dwellings for investors. Removing these restrictions would encourage investor activity at a time when the market is flat — and would act as a huge incentive to build at a time when we need a big increase in new dwellings.
The policy would be strictly limited to two years from a clearly signalled date so as to motivate investors to act and to confine the policy to the flat period of the housing cycle.
3) Remove LVR restrictions on all dwellings for first home buyers. One of the biggest obstacles to getting into the market, for first home buyers, is the large deposit required due to the LVR restrictions — currently 20 per cent of the purchase price.
Removing that requirement would eliminate the need for unrealistic savings or the "bank of Mum and Dad" and would level the playing field so that anyone with a decent household income and a good credit rating could get into their own home.
Again, this policy would be strictly limited to two years from a well-signalled date.
That's it. No doubt these ideas could be refined and tweaked. But introducing them, even in this form, would address the objectives outlined above and quickly change the behaviour of the market in a way which would lead to a big lift in the construction of new dwellings.